The redemption value is less, unless there has been inflation. NB: I believe that TIPS are indexed to "core" inflation, which does not include some important things like energy prices, so TIPS won't protect against rapid increases in the price of oil. Bernanke hasn't ruled out negative coupons (or equivalent). See his 2002 speech here: http://www.federalreserve.gov/BOARDDOCS/SPEECHES/2002/20021121/default.htm --- Countries with a habit of too much inflation also have a habit of declaring old currency worthless, from time to time, just to keep the amount stuffed in mattresses under control. Due to the popularity of U.S. currency in the international drug trade, other countries have occasionally called upon the U.S. to "update" our currency to new, crisp, version 2.0 bills, after which the old currency would become worthless. Drug dealers & money launderers would then have to scramble to exchange their millions of bills into new ones, producing lots of chances for them to be noticed. Despite our willingness to spend enormous amounts of money to stop the drug trade, the U.S. hasn't (yet) taken this relatively cheap step. The U.S. government did sever the relationship between gold & dollars back in the 1930's, and severed the relationship between silver & dollars in the 1960's. Harvard&MIT-educated Bernanke would simply take this sequence to its limit, severing the relationship between anything of value and dollars. At 03:43 PM 10/25/2010, Dan Asimov wrote:

Apparently some treasury bonds have just sold, at government auction, with negative yields:

"Inflation Bonds Are Sold With Negative Yield for First Time" at < http://www.nytimes.com/2010/10/26/business/26markets.html >.

But what does "negative yield" mean?

I feel confident that it does *not* mean that the purchaser of the bond must make periodic coupon payments to the seller.

But perhaps it means that the redemption value of the bond at maturation is *less* than the price it is purchased for? (If so, it's hard for me to imagine why it's not better to just keep that money in a safe all those years. Maybe a good safe is too expensive?)

--Dan